As grain and oilseed stocks continue to swell worldwide, rapeseed supply has been waning and is expected to tighten further in 2016/17.
The global stockpile of rapeseed has shrunk by 30% over the last year, and with lacklustre harvest prospects for this year, analysts have proposed that rapeseed prices are likely to rise through mid-2017.
Rapeseed, also called canola for certain variants, is known for its rich oil content. The oil is a primary ingredient in Europe’s growing biofuel industry and is one of the major vegetable oils for human consumption globally. As a meal, it is a high-protein animal feed used mainly in China and Europe.
But falling supply may not necessarily mean higher demand. Rapeseed will find itself in competition with cheaper, more abundant oilseeds like soybeans, and demand may be carved out even further by low crude oil prices.
Unless a huge drought emerges this spring and ultimately vapourises world supply, there may be too many unknowns at this point to determine whether rapeseed prices will sustain or even increase into 2017.
The things we know now are that world rapeseed supply has been falling, 2015/16 demand is expected to decrease from the previous year, and that prospects for the 2016 rapeseed harvest are nothing extraordinary so far.
The rapeseed outlook for 2016/17 is not overly optimistic for the European Union, the world’s largest producer and consumer of rapeseed and its byproducts. Planted area for the autumn-sown oilseed is expected to be slightly down from last year and at least 6% down from the recent average.
Planted area in major exporter Ukraine suffered immensely due to extremely dry conditions in the autumn. As a result, the harvest volume could be cut by up to one-third on the year, before factoring in any potential gains or losses to yield.
Lower harvest prospects on the Eurasian continent will further draw down the falling supply there. Rapeseed ending stocks in the EU are expected to be halved in 2015/16 to the lowest levels in 12 years.
Globally, both rapeseed and rapeseed meal stocks could be reduced by nearly one-third in 2015/16. The decline in oil stocks is a more modest 12%, owing to a record crush in the world’s largest canola and canola oil supplier, Canada.
Though global supply is down, rapeseed demand is also expected to decrease in 2015/16, as it will lose ground to competitors. Recent oilseed crush statistics in the EU perhaps provide a good example.
Monthly data released by Fediol, a federation representing Europe’s vegetable oil industry, suggests that between August and January, the rapeseed crush fell by 5% over the same period one year prior. But the soybean crush gained 11%, and 22% over two years ago.
There is more uncertainty around the 2016 rapeseed harvest in countries that have not yet planted and how global demand is likely to shape up for 2016/17.
Rapeseed’s key role in Europe’s biodiesel industry links demand and prices to those of crude oil. Lower crude prices are thought to have a negative impact on biodiesel demand and thus production.
The consensus view in the market is that the price of crude is unlikely to rise significantly in 2016, which may ultimately reduce rapeseed demand. But because the biofuel industry is relatively new, there is not a wealth of history linking oilseed and crude fundamentals, so the impact on rapeseed and other oilseeds is not entirely decided.
China, the world’s leading rapeseed importer, holds pieces of the puzzle on both the supply and demand sides. For one, the elimination of the minimum support prices by the government last September has caused domestic prices to drop, making several crops less attractive to produce.
As such, the Chinese rapeseed sown area is expected to drop about 10% from last year, which would seemingly stimulate imports.
One of the goals of Beijing’s move last year was to hopefully draw down China’s massive grain and oilseed stocks. China is currently sitting on two-thirds of the world’s rapeseed oil, so the reduction of the domestic rapeseed crop in 2016 may not translate into increased international demand.
Low soybean prices have led many Chinese livestock producers to replace rapemeal with soymeal. But not all industries have the luxury to make this substitution, namely the fishing industry, and this adds another grey area to the unclear picture of Chinese rapeseed demand into 2017.
The canola growing season is still far away for Canada, which exports two-thirds of the world’s canola. Current market expectations are rather mixed, and we will not have more clarity on this until Statistics Canada releases its yearly seeding intention report on April 21.
Australia also has yet to sow its crop, but the early outlook is promising for the world’s second largest rapeseed supplier. Australia’s agriculture bureau stated last week that the harvest may rise up to 11% on the year.
All things considered, the 2016 global rapeseed harvest is far too early to call, but even if overall planted area ends up being down, it doesn’t mean that yield cannot make up for some of that loss. The average growth in global rapeseed yield is about 2% per year, but good weather can add an extra 10%.

Karen Braun is a Reuters market analyst. The views expressed are her own.